The ongoing debate over central bank digital currencies (CBDCs) often centers around questions of direct monetary policy transmission, eliminating the privacy provided by physical cash, and the moral and security risks posed by a centralized digital monetary system.
The “programmable money” aspects of CBDCs, however, also pose highly consequential dangers that are worth focusing on. Digital cash that authorities or system designers can shape to encourage or penalize specific behaviors — to nudge people to make the “right” choices and to comply with whatever policy the government decides to implement at any time — can pose significant risks to individual financial sovereignty.
But the risks can go even further. CBDC critics have sounded the alarm over possible mechanisms that can be “baked” into the digital money itself, from expiration dates to spending restrictions, or automatic allocations that turn currency into a tool for social engineering. These concerns have been dismissed as fanciful or alarmist. And yet they are neither of these things — they are not even theoretical. Regional complementary currencies already operationalize many of these features on a smaller scale, offering a live demonstration of programmability’s mechanics and its implications.
Programmable money in practice
Among these, the local “Chiemgauer” project in southern Germany stands out as one of the most instructive examples. Launched in 2003 in the Chiemgau region of Bavaria by high school students and their teacher, Christian Gelleri, it functions as a euro-backed local currency designed explicitly to influence economic behavior. While other regional experiments exist, the Chiemgauer’s deliberate use of demurrage (a built-in depreciation) and directed allocations makes it a particularly clear preview of how programmable features can embed policy objectives directly into money itself.
The Chiemgauer is accepted by several hundred participating local businesses in the Chiemgau region, and it was originally designed to boost the local economy and to encourage shorter supply chains in order to reduce CO2 emissions. It functions as a voluntary complementary currency, similar to a voucher system, fully backed by euros, and it has no validity outside its limited regional network. The currency operates on a simple 1-to-1 peg to the euro, and users can exchange euros for Chiemgauer notes (or their digital equivalents) at issuing offices.
What distinguishes it is its active programmability. The notes carry built-in expiration mechanics. For its first 12 years, holders had to affix a stamp costing 2% of the notes’ value every three months in order to keep them valid. As of 2021, this demurrage rate was 3% every six months, or 6% per year for the paper notes, while for the digital Chiemgauer the demurrage rate is calculated daily (6% divided by 365 days). If the holder fails to pay the demurrage duty, the note — physical or digital — simply becomes worthless. This “carrying cost” thus explicitly penalizes what its designers see as hoarding, and strongly incentivizes rapid circulation and local spending.
‘They treat currency as software for shaping society rather than a passive tool for voluntary exchange.’
Holding onto Chiemgauer currency might alternately (and more accurately) be described as “saving.” Yet even if the holder is happy to pay the demurrage in order to keep their Chiemgauers valid, they can’t do so for long. A single physical banknote has a total maximum lifespan of three years, after which it permanently expires, is pulled from circulation and is replaced by a newly printed bill. The result of all this monetary engineering is measurable. The Chiemgauer circulates significantly faster than the euro, as estimates suggest it has 2.5 to 4 times higher velocity.
The off ramp from the currency is interesting as well. Consumers and nonprofits cannot convert Chiemgauer back into euros, so there is no exit possibility. If you bought Chiemgauers, you have to spend them within this limited network or pay the penalty for every day you don’t. If you do neither, then your money just expires. Businesses accepting Chiemgauers can convert them back to euros, but at a price: 5% of the value is withheld from every exchange into euros, of which 3% goes to non-profits, local clubs, charities or projects and 2% goes to Chiemgauer e.V., the association behind the currency for administrative costs. This automatic donation mechanism turns every transaction into a partial contribution to pre-approved community goals. The currency thus functions not merely as a medium of exchange, but as a targeted policy instrument for reinforcing local priorities, environmental aims, or social causes.
The Chiemgauer is not unique. There are similar experiments worldwide that illustrate the same principle of money as a malleable policy lever. BerkShares in the Berkshires region of Massachusetts, launched in 2006, offered a built-in discount — 105 BerkShares for $100, spent at par, steering consumption toward participating Berkshire-area businesses. France’s Sol-Violette in Toulouse and Abeille in Villeneuve-sur-Lot also incorporate incentives for local and ethical spending. The eusko in the French Basque Country is now the biggest unofficial local currency in Europe, with 4.5 million euskos (also pegged 1-to-1 to the euro) in circulation as of 2025. It is very similar to the Chiemgauer, but is more focused on supporting regional identity and promoting the Basque language, as it requires participating merchants to implement bilingual public signage and actively promote the use of the Basque language in daily commerce.
These systems vary in design but share a core philosophy: money should not be neutral. Designers intentionally program rules like demurrage, redemption fees, directed donations, geographic limits or eligibility criteria to achieve outcomes like reduced inequality, environmental sustainability or community resilience. They treat currency as software for shaping society rather than a passive tool for voluntary exchange.
From regional experiments to national CBDCs
Regional complementary currencies have remained under the radar and their impact is largely contained because of their geographical limitations — and, most importantly, because participation is entirely voluntary. Nobody is forcing people to use them, and they are not accepted outside their communities. This makes it easy to dismiss them as quaint “play money” projects that have the bonus of strengthening community bonds, and supporting local economies and things like mom-and-pop shops, farming families and children’s sports clubs. What’s not to like?
This becomes a lot more problematic — and even dangerous — when the element of voluntary participation is removed from the equation. A national or even supranational digital currency issued by a central bank would enjoy legal tender status, network effects and integration into the broader economy. Programmability features tested locally, like demurrage and expiration dates, can grow to include “nudges” for other behaviors through spending caps, geographic or merchant restrictions, direct negative interest rate enforcement, automatic taxation or donations. They could be applied at scale with far greater enforcement power. Letting the government create “designer money” is the kind of power that can expand to fit whoever holds it. The Chiemgauer shows how benign this can appear. It runs an eco-incentive system that directly rewards citizens in the local currency for pro-environmental behaviors, with citizens receiving financial rewards for actions such as using local car-sharing services, getting their clothes repaired instead of buying new ones or installing solar panels in their homes.
‘When money is designed rather than emergent, someone must always choose the rules.’
We can see the potential for abuse once the use of programmable money is not merely optional but mandated by law. The possibilities for state overreach are as endless as they are attractive to politicians. For example, we could see stimulus payments with an expiration date. An example of this arose in 2020, when the People’s Bank of China distributed 10 million digital yuan (about 200 yuan per person to around 50,000 lottery winners) in Shenzhen’s Luohu district. These funds were programmed to expire within about one week. Or, maybe, time will not be the limiting factor — perhaps citizens will be able to spend their stimulus checks whenever they want, but not wherever they want. The money could be programmed to be spent only at government-approved merchants or only for select goods and services categories.
Another scenario is applying different rules for different user groups: some people’s money may be more limited than others. The usage data collected could also enable real-time behavioral nudges or restrictions based on compliance, carbon scores or social metrics. Privacy concerns amplify with scale. Regional systems involve limited data, but a CBDC could generate highly granular transaction profiles. Even well-intentioned designs risk mission creep: today’s local charity allocation becomes tomorrow’s mandated contribution to a national agenda. In other words, it could become yet another form of taxation.
Who writes the rules?
CBDC proponents continue to highlight benefits like financial inclusion or precise policy transmission, but the precedents we already have show how easily such tools embed specific values that may not align with all citizens and specific policies that they never directly voted for. This is the greatest danger that lies at the heart of the idea of programmable money: by definition, it cannot be neutral. When money is designed rather than emergent, someone must always choose the rules.
Embedding policy in the currency itself and wielding it as a direct enforcement tool is quite different from pursuing the same goals through conventional avenues like taxation, regulation or monetary policy. The adoption of CBDCs would open the door to the extinction of cash — which for the moment offers an “escape route” — as well as the end of what remains of financial privacy.
In small, voluntary communities, intentional quirks can foster growth and attract new users who support the aims and values of the design. In fact, having as many alternative currencies as possible would in my view be a net positive, as it would encourage competition and innovation in the monetary system that is currently a state monopoly. However, the moment the freedom of choice is taken away, we are inviting an enormous concentration of power in the hands of whoever happens to control the programmable parameters at the time.